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Powering the UK – a multi-faceted approach | TLT Contents

Introduction...... 1 The energy storage revolution...... 3 Co-locating - the new trend?...... 5 Storage+ projects...... 6 Conclusions...... 7 Transition to transport electrification...... 9 Supporting the growth of EVCI...... 10 Putting energy storage into play...... 11 Funding EVCI – a debt or equity play?...... 12 Conclusions...... 13 Summary...... 15

ii Powering the UK | a multi-faceted approach Introduction

As the UK transitions to net zero by 2050, has brought issues such as noise and air pollution what started as a mission to decarbonise the to the forefront of people’s minds. The massive electricity system by increasing the share of reductions in both noise and air pollution levels renewable generation on the grid has also during lockdown has highlighted the need for greener become an electrification agenda that looks infrastructure and the creation of an economy to decarbonise the transport sector as well. which places Environmental, Social, and Corporate However, in order to achieve these goals Governance (ESG) at the heart of it. there needs to be a multi-faceted approach Indeed, with the green agenda focusing discussions to managing supply and demand. This will in about how to shape our future economy, it would turn create an energy network which is carbon seem that the clean energy sector has an important neutral, fit for purpose, and can manage future role to play in the economic recovery of the UK. energy needs by utilising the full range of clean energy technologies. The deficit between current generation capacity and the estimated 90GW of wind energy, 80GW The early adoption of renewable generation of solar power and 30GW of energy storage technologies such as solar and onshore wind has required by 2050 means a huge number of already had a big impact on how the UK sources additional schemes need to come online. This its energy. At the end of 2019, the UK’s renewable upscale in generation capacity represents an electricity capacity totalled 47.7GW and, for the exciting opportunity to drive economic growth first time, provided more electricity to UK homes by creating jobs and developing local supply and businesses than fossil fuels. However, while chains based on clean energy. the transport sector has started its journey to electrification, a more comprehensive electric With funders and investors still having a clear interest vehicle charging infrastructure (EVCI) is required in acquiring and funding renewable generation and the interconnectivity between operators and projects – even the less mature technologies such as payment systems needs to be addressed before the energy storage – the sector is poised for considerable sector is ready for 2035. growth. However, as levels of renewable generation deployment increase, careful consideration needs to be given to creating an energy system that can operate and function without the regularity provided by ‘At the end of 2019, the UK’s fossil fuels. Adding more renewable generation assets such as wind or solar on their own is not going to renewable electricity capacity solve this puzzle, so how do we create a clean energy totalled 47.7GW and, for the infrastructure which will meet the UK’s net zero goals? This report provides an overview of the UK’s energy first time, provided more storage market and our transition to transport electrification, assesses the potential of co-located electricity to UK homes and projects, reviews the benefits and challenges businesses than fossil fuels.’ associated with multi-technology projects, and reflects on how the industry can support and fund the growth of EV charging infrastructure. It also considers how energy storage can be put into play As the UK transport sector goes electric, there is to drive e-mobility and explains how funding is likely also the issue of powering EVCI. How will this impact to be achieved in different scenarios. This paper the grid? How much renewable generation capacity aims to help you make informed decisions about the will be needed to provide additional power? And development of clean energy projects and obtain what role will energy storage and/or multi-technology relevant legal guidance and support. projects play in reducing impact on the grid? Our energy use has changed as a result of the COVID-19 pandemic, and in May this year The Maria Connolly | International Energy Agency suggested that the huge Head of Clean Energy and Real Estate reduction in energy demand caused by COVID-19 T +44 (0)333 006 0109 may completely negate the need for fossil fuels. [email protected] The recent shift in working practices, the way we shop, and how we socially interact with each other

1 Powering the UK | a multi-faceted approach “At the moment, all the large solar PV sites that we’re aware of are being designed in a way that will enable them to accommodate battery storage in the future as a minimum future- proofing strategy...”

2 CleanPowering Energy the InvestmentUK | a multi-faceted Trends 2018 approach The energy storage revolution

Policies which have increased the uptake the growth in renewable generation, coupled with the of renewable generation and prioritised its grid-balancing services of energy storage, will see integration into the grid have had multiple side renewable energy contribute to a greater percentage effects. For example, conventional power plants of the overall demand for energy, thereby reducing are being ousted from the system, not only due the need for fossil fuels even further. to government targets around coal phase-out but also because they are becoming increasingly Maximising value uneconomical to operate. This in turn has created a gap in baseload generation and the need for market However, the energy storage revolution does mechanisms such as the Capacity Market to ensure not stop there. It is playing an important role in a balance between demand and supply. In addition, the development of subsidy-free projects, and in due to the grid’s need to maintain frequency rates the context of co-location could be an attractive at 50Hz, grid operators are also enhancing the proposition to maximise value to those developing procurement of frequency response services. and operating projects for the wholesale markets where risks such as such as price fluctuations, While energy storage is not a new concept, the cannibalisation and negative pricing are becoming technological advancements of the past decade and the new challenge. the intermittent nature of renewable energy means that it has an important role to play in facilitating the “At the moment, all the large solar PV sites that we’re time-shifting of generation to when it is most needed. aware of are being designed in a way that will enable them to accommodate battery storage in the future Stand-alone projects as a minimum future-proofing strategy – and that’s a significant evolution,” says Ben Irons, co-founder at The success of stand-alone energy storage Habitat Energy. projects in the National Grid Capacity Market (CM), As a large number of subsidy-free projects are in the Firm Frequency Response (FFR) and Enhanced early stages of development, co-locating storage Frequency Response (EFR) have proved how with other generation assets may primarily be part of essential this emergent technology will be in creating a future proofing strategy at this time and the market a carbon-neutral infrastructure. The ability of energy certainly seems to be moving in this direction with storage to provide back-up for times when solar the number of co-located projects increasing by 50% panels or wind turbines are not providing power is according to the latest figures from inspiratia, on the now more important than ever. The huge slump in following page. energy demand caused by COVID-19 means that

3 Powering the UK | a multi-faceted approach Figure 1: Renewables co-location deals in the UK, 2017–August 2020

Source: inspiratia | dataLive

Boosting the market planning decisions for electricity storage of any size will generally be consented by the relevant Local The development of any technology is, in many Planning Authority under the TCPA regime. respects, tied to investor interest and while operational assets such as onshore wind and These changes in legislation enable the co-location of solar are seen as a safe investment, investors are energy storage with other types of renewable energy becoming more comfortable with funding less projects under the relevant NSIP threshold, where mainstream technologies such as energy storage, under previous legislation the addition of energy both on a debt and equity basis. storage would have put the project within the NSIP regime. It is worth noting, however, that the new “Beyond the traditional investments in subsidy- legislation does not address the issue of mid-range (50 backed portfolios of operational assets, we’ve seen an increase in appetite to invest at an earlier stage -100MW) solar projects falling within the NSIP regime. alongside the developer, whether that’s at the The new legislation also raised the threshold from shovel-ready point or, increasingly, even prior to that 50MW to 350MW for stand-alone energy storage when projects are still at the greenfield stage. Those projects, which will be beneficial in the context of investments have also moved with the progression providing grid balancing services as the amount of of the sector into subsidy free assets and into less renewable energy generation on the grid increases. conventional technologies such as energy storage assets,” comments Kay Hobbs, Corporate Partner in It is also worth noting that the recent change to the TLT’s Clean Energy Team. fourth Contracts for Difference (CfD) auction (set for 2021) which allows solar and wind to participate, may Legislative changes lead to a significant uptick in activity and increased investor appetite. Alongside renewed investor appetite, the energy storage market was also given a boost in July 2020 “CfDs will boost solar deployment in the UK, but when the government announced that it would investors may need to accept lower rates of return in legislate to remove electricity storage, except pumped exchange for risk reduction. For those choosing the hydro, from the Nationally Significant Infrastructure higher return, merchant model, investors may also Projects (NSIP) regime in England and Wales meaning wish to add storage to mitigate longer term price that going forward the primary consenting route for cannibalisation risk and price volatility. The benefits electricity storage in England will be under the Town that storage brings in this context will drive co- and Country Planning Act 1990. Whereas, in Wales, location,” comments Mark Futyan, CEO at Anesco.

4 Powering the UK | a multi-faceted approach The next twelve to eighteen months are going to be Legislative changes are having a major impact an interesting time for energy storage developers, on renewable energy activity, with the removal and as more renewable generation comes online of electricity storage from the NSIP regime the challenges of integrating storage as a balancing and the MW increase for stand-alone projects mechanism – either co-located or stand-alone – are addressing at least some of the challenges likely to lead to changes and solutions that will only faced by developers. serve to make storage a more attractive proposition.

Co-locating – the new trend?

Until recently, energy storage projects have primarily CEO at Anesco. “If you have storage on site you’re been developed on a stand-alone basis where the protecting against electricity price spikes and from battery acts an optimisation tool to counter-balance the cannibalisation effect by taking advantage of the the intermittent generation of renewable assets. time-shifting capability – though as this is not an issue in today’s market this is definitely more of a long term However, the development of subsidy-free schemes benefit,” he adds. and the need to future proof new projects has led to increased interest in co-locating energy storage There are other issues to consider as well. Take, with renewable assets. Co-locating energy storage for example, the impact that retrofitting storage is not just attractive because of its load-shifting could have on existing renewable subsidies. While ability. Where the project is connected to the grid, the not insurmountable, careful modelling is required. savings achieved by sharing grid connection capacity Another issue, and this is an important technical and inverters are a potent argument for designing a point, is the grid connection. A lot of operational sites project with storage, either from the outset or with the within the UK have a one-way grid connection which capacity to add storage at a future date. allows them to export but not import. This would completely negate the viability of retrofitting storage “When you’re designing a co-located project the because it could only charge from the existing asset solar and the storage is sized relative to the grid and then export – with a load factor of more than connection, therefore the benefit of having storage is 90%, this is not economical. For retrofitting to work that you can increase the amount of solar that you put there either needs to be a two-way grid connection on the site by 20% to 25% for a typical solar project. already in place, or an application to upgrade the This has a positive knock on effect on capital costs grid connection would need to be made to the per MW and operational benefits which in turn drives Distribution Network Operator (DNO), which may the rate of return,” says Ben Irons, co-founder at also not be economical. Habitat Energy.. In addition, this model is also attractive in a behind- Risk vs reward the-meter context, where additional benefits come from charging the battery directly from the While there are a number of schemes which have renewables asset without going to the wholesale successfully retrofitted storage, the investment market, avoiding curtailment and clipped power, as required versus long term return does not always well as imbalance management. stack up. As operational schemes continue to be consolidated into portfolios, the asset owner is likely Retrofitting existing assets to see little benefit in retrofitting where there is no real return on investment. The central proposition for the retrofit model is to take The exception to retrofitting may be behind-the- advantage of any spare connection capacity and meter schemes where the addition of storage to optimise the project’s output. existing assets can help manage off-taker demand, “The retrofit business case is typically one that’s and reduce the need for energy to be procured from more strategic in nature,” comments Mark Futyan, other sources.

5 Powering the UK | a multi-faceted approach Storage+ projects

While there is significant interest in co-location, then this flexibility can be embedded into the project particularly solar plus storage, as yet there are very and additional revenue streams such as ancillary few operational projects. GRIDSERVE’s development services, FFR, and CM can be added. for Warrington Borough Council (WBC), a 34.7MWp solar farm with 30 MWh of battery storage completed Finding a viable model late 2019, is one example. This is partly due to the lag times involved in developing a project which One reason for slow take-up of co-located projects can be up to two years from building the investment may be that each project needs to be considered case to going into construction and then becoming on its individual merits and the business case can operational. And partly because co-locating get quite complex, particularly where there is a site- renewable assets with storage is a relatively new specific reason for co-locating such as a specific grid concept and some of the challenges around design, connection issue or restrictions around active network construction and operation including optimisation, management of the grid connection. In both these investment and risk management are still being instances the amount of renewable technology which worked through. can be added to the grid could be heavily curtailed. “GRIDSERVE’s project for WBC was one of the first “There’s the potential to use co-located storage to subsidy-free multi-technology developments at this manage these constraints more effectively,” comments scale in the UK. It required everyone working on the Nick Heyward, Head of UK Energy Storage at Statkraft project, ourselves as GRIDSERVE’s legal advisors Markets. “But in order for this business model to work included, to completely re-think the model for solar the renewable generation and storage assets have to projects - questions around the sizing, duration, fit together and be optimised together to make sure grid optimization all had important implications that you’re maximising the value of the combination of for the project. Resolving these led to a new those assets.” commercial model which could set the precedent While the business case for developing co-located for subsidy-free utility scale solar energy in the UK,” projects where the power generated is being sold comments Maria Connolly, partner at TLT. on multi-revenue stream basis may currently be It is easy to see why developers are having to go too complex and too high risk for investors to see a through a considerable amount of ‘on project’ learning. massive uptake, there does, however, seem to be viable model for this type of scheme where there is Building a business case an off-take partner who can provide a PPA.

Optimising the revenue streams on stand-alone energy Optimising PPAs storage schemes can be a challenge. However, but when you co-locate storage with renewable assets The industry already has a developed route-to-market such as solar - where there is not a direct off-taker which provides PPA security for standalone storage – this can be exacerbated by the fact that both assets. For example, in January 2020 Habitat Energy technologies are sharing a grid connection and the agreed a multi-year optimisation deal for Gresham availability of this grid connection may be weather House Energy Storage Fund’s 74MW portfolio, while dependent. in February 2020 Shell Energy struck an off-take deal for the 100MW Minety power storage project Currently the market view is that in order to build comprised of two 50MW batteries. a business case which works for co-location, the assets involved need to be treated as if they are The complexity may change when the discussion turns separate standalone assets. For example, the solar to a deal which combines the two technologies. There subsidy free generation side of the project, and the are several market options to consider from a private- storage side of the project. Using that basis it is then wire PPA, such as Anesco’s optimisation deal with EDF possible to build a business case by layering the Energy and technology partner Upside Energy for the project by combining multiple revenue streams. For company’s 16MW Clayhill solar PV and storage asset, example, if the primary reason for co-locating storage to two completely separate PPAs for the renewable is to arbitrage the solar output, which is a similar and the storage assets to a Hybrid PPA. optimisation problem to a standalone storage project,

6 Powering the UK | a multi-faceted approach Hybrid PPAs When looking at project funding, the fundamental difficulty is the lack of long-term predictable cash- Hybrid PPAs, which combine the assets into a flows when compare to FiT or ROC subsides. While co-optimised PPA structure, are relatively new to Capacity Market 15-year contracts had catalysed market with the likes of Statkraft and Habitat Energy significant investment in the sector, the introduction launching products earlier this year. They could, of de-rating factors of up to 10% for short-duration however, deliver better value for co-located projects assets has reduced the contract’s role in facilitating by being able to accommodate both the fact that access to funding. there are different onsite generation assets with different marginal running costs, and the flexible “Whether it’s subsidy-free solar, pure play storage nature of storage and its ability to provide multiple or co-location, when looking at funding options the services. The idea being that by taking account challenge is the risk return balance. To date merchant of these facts, the Hybrid PPA provides site-wide projects have struggled with too high a risk profile to optimisation rather than a single asset optimisation. attract project finance, and too low returns for equity Certainly this is an area to watch over the coming investors. With equipment prices falling, and specialist months and one, if the figures add up, which could investors emerging, we are now starting to see investor provide a boost to co-location. interest picking up significantly,” says Mark Futyan, CEO at Anesco. Project funding While there has been some initial debt funding of, Solutions and equity investment in, stand-alone energy storage One solution for co-located projects (including solar projects, the technology is still in its early stages rooftop) could lie in securing a private-wire PPA which and different investors view the risk associated with would bring the benefit of a secure revenue stream energy storage projects differently. and a potentially higher PPA price. However, the “The merchant element is challenging for equity familiar issues of finding an off-taker willing to enter due to the revenue uncertainty, driven mainly into a long term PPA with appropriately robust grid through power price volatility caused by intermittent sharing arrangements, plus the obstacles thrown-up generation, which makes this revenue stack even by the electricity supply licence exemption rules, harder for lenders to consider as being bankable,” continue to make projects of this kind a challenge. says Gauri Kasbekar-Shah, director at Natwest. “That It would seem that there is not going to be a one said, the equity side is certainly more adaptable and size fits all solution when looking at funding. As willing to take these risks based on higher return the market matures, each project structure will be expectations, and ultimately from a debt perspective unique and needs to be developed with its revenue we would follow where equity goes and develop stream(s) in mind - be that via a private-wire PPA, a appropriate financing structures.” hybrid PPA or other - in order to be viable.

Conclusions The nature of our energy system and the supply However, this may not be something that those and demand of our energy use means that there operating in the market can achieve without is a symbiotic relationship between storage and additional support from the government, Ofgem and renewables. In order to add more renewable National Grid, as to develop a truly multi-faceted generation to the grid you also need to add more approach more flexibility is needed in the market, storage as it provides the flexibility of supply that and more balancing services are required to ensure renewables can’t on its own, and our net-zero that there is security of supply and that the grid generation strategy needs to take both of these stays online. elements into account.

‘...the development of subsidy-free schemes and the need to future proof new projects has led to increased interest in co-locating energy storage with renewable assets.’

7 Powering the UK | a multi-faceted approach ‘The UK already has a burgeoning network with Zap Map recording that over 17,700 charging devices had been installed as of August 2020...’

8 Powering the UK | a multi-faceted approach 8 Transition to transport electrification

The transport sector accounted for 34% of the UK’s EV charging infrastructure carbon emissions in 2019, making it the country’s most carbon-intensive sector. In order to achieve In order for users to really buy into going electric its 2050 net zero target, the UK Government has we need to see the introduction of an increased placed significant emphasis on electrifying the range of more affordable EVs and the development country’s transport system and, while there was of robust and widespread electric vehicle charging a 2.8% fall in carbon dioxide emissions from infrastructure (EVCI) that can cope with rising levels transport in 2019, the sector still some way to go. of demand, meet customer requirements in terms of usability and interconnectivity, and minimise impact The 2035 ban on the sale of new petrol and diesel cars on the UK’s energy network. In addition, zero-emission has placed electric vehicles (EVs) at the forefront of zones in London and other cities, will also help transport decarbonisation, and the reduction in noise accelerate the pace of EV adoption and EVCI usage. and pollution levels over recent months has refocused public interest in green transport. The UK already has a burgeoning network with Zap Map recording that over 17,700 charging National Grid estimates that there could be as many devices had been installed as of August 2020 with as 11 million EVs on the road by 2030 and 36 million greater London being the fastest growing region, by 2040, and there is already a growing uptake in EVs representing just over 26% of the total. with Nextgreencar.com reporting record sales for the first half of 2020 while other fuel types saw a decline of 35%. Indeed, EVs were the only fuel type to see sales increase in May.

Figure 2: Share of UK EVCI by region

Source: Zap Map, inspiratia

9 Powering the UK | a multi-faceted approach Opportunities, trends and developments Electric Forecourts® concept – the first of which is due to open in Braintree later this year. The UK’s EVCI will continue to grow over the coming months with several trends driving its development. In addition, alongside the introduction of green Despite changing leisure and retail habits, destination public transport – for example Stagecoach’s electric charging is still viewed as a key growth area with fleet, London’s electric black taxis and Bristol’s Bio- both retail and leisure operators looking to add value Buses – commercial vehicle fleets also have a role to the customer experience and increase dwell time. to play. While companies such as Amazon, Royal There has already been considerable activity in this Mail and Sainsbury’s have already started to deploy area; retailer Morrisons partnered with developer EVs as part of their fleet, the development of ‘EVCI + ChargePoint to rollout a network of 100 50kW battery’ solutions which can negate grid constraints chargers; Pod Point partnered with Tesco to install and allow fleet operators to scale their EV adoption 2,400 chargers at 600 sites over the next three-years; incrementally will help increase commercial fleet and others such as Sainsbury’s, Heathrow, Kia and adoption. the National Trust have also rolled out similar plans. “When evaluating fleet charging requirements, you Another significant growth area will be influenced by have visibility on how many miles per day, per week local authorities pushing forward the development and per month that a fleet vehicle will travel. But what of publically available EVCI in their areas. In the is unknown in some parts of the country is the power majority, these schemes are being developed in capacity available and required to scale up the partnership between local authorities and private deployment of electric vehicles. One solution to this developers, as this public-private model allows the challenge is connecting utility-scale battery storage local authority to meet its net zero goals and provide to the same local grid connection point of fleet charging infrastructure without the capital cost. operators. This approach addresses both the cost challenge as well as the expansion of capacity issue EVCI is also being expanded through the that fleet owners face. This strategy means the fleet development of EV charging stations. Following on operator isn’t going to trigger grid enforcements and from Ecotricity’s pioneering electric highway concept associated costs as they scale,” explains Matt Allen, which launched in 2011, we are now seeing the CEO of Pivot Power. development of EV charging station models on other main infrastructure routes such as GRIDSERVE’s

Supporting the growth of EVCI

As our EVCI network grows, one of the issues Figure 3: Global EVCI projects in comparison to facing the sector is that our energy system is not yet multi-tech EVCI (procurement and financial close) prepared for the electrification of transport. This is where renewable generation has a clear role to play – in providing a clean source of electricity which is Multi- scalable and sustainable. tech In practice, this means via generation and storage 7% assets which are connected to the grid, and by bundling technologies together to create multi-tech projects which combine solar, storage and EVCI to reduce impact on the grid, or are situated behind- the-meter. However, while the market is moving towards the development of multi-tech projects, some of the challenges around creating a robust business case are slowing down project activation. According to dataLive, currently only 6% of global EVCI deals include storage or Electric Vehicle Charging renewable generation. Whereas the number of 93% multi-tech projects to achieve financial close are as low as 3%. The industry, therefore, is asking ‘what’s the solution?’ Source: inspiratia | dataLive

10 Powering the UK | a multi-faceted approach Figure 4: Number of UK multi-technology EVCI deals by combination (procurement and financial close)

Source: inspiratia | dataLive

Putting energy storage into play

While multi-technology projects which combine It is worth noting that an area where we may see a EVCI with multiple assets are at a nascent stage more immediate uplift in the development of multi- of development, energy storage already has a technology projects is where grid capacity is limited recognised role to play in balancing and managing and a behind-the-meter solution which combines the increased demand EVCI will place on the solar, particularly rooftop or carport, with storage and energy system. EVCI could be beneficial. “There’s definitely a role for storage to sit alongside EVCI to help manage constraints and capacity Fleet plus storage issues on the grid and those are exactly the kind of There is also a use case for adding storage where use cases that we’re starting to see come through fleet operators are looking to switch to EVs but issues as initial sets of projects,” comments Nick Heyward, with local grid connections, which are expensive and Head of UK Energy Storage, Statkraft Markets. can take a year or more to alleviate, may prove to There are already some interesting examples of be an inhibitor to implementation. For example, by energy storage being deployed alongside rapid installing batteries and chargers at Stagecoach’s fleet EVCI, both where it is co-located with the EVCI and depot in Guildford, Surrey, Zenobe Energy provided as a stand-alone proposition providing balancing an alternative solution which also provided spare services. Currently the latter of these project types capacity for future electrification. is more common as the multiple revenue streams “This project highlights the role energy storage can means the business case stacks up and the play in delivering the multi-faceted solutions which developer can take advantage of additional grid will drive the electrification agenda. The pairing of capacity. Whereas, developing a robust business battery storage with EVCI provides a cost effective case for co-locating EVCI and battery storage alternative to expensive grid upgrades and we continues to be a challenge, as there is not yet a expect to see more of these projects come online as clear route for avoiding final consumption levies on additional EVCI is developed both for fleet vehicles electricity imported for charging the battery where and consumer use,” comments Maria Connolly, Head that battery is co-located with the source of final of Clean Energy & Real Estate at TLT. demand, ie EVCI.

11 Powering the UK | a multi-faceted approach Private-wire plus storage “We’re expecting V2G to be very valuable. The fact that it can help balance out supply and demand on Another option when combining EVCI with storage is the grid is a massive benefit. However, as with all a model which is utilised by Pivot Power, who locate new cutting edge technology is going to be about its batteries by transmission systems which are then finding the right balance between this [V2G] and connected to EVCI within a 5km radius by private existing technology such as smart charging, time- wire. With EVCI operators looking for a 10–20 year of-use tariffs and energy storage. You also have to private wire commitment this generates a more factor in the customer, to encourage consumer take secure revenue stream for the battery operator up, and for V2G to be viable from a customer point which sits alongside the merchant battery revenue of view, it may be that a significant number of smart streams. At the moment, the challenge with this tariffs like Octopus Agile are going to be needed from model is uptake, as the EVCI market is not mature more suppliers,” comments Zoisa Walton, Director at enough to ensure private wire customers are ready Octopus Energy. to connect. However, this is likely to change as the market develops. One area where the implementation of V2G would seem to have a clear role for usage is in aggregated The role of V2G fleet, as fleet returning to the depot at night can be used by the grid, and earn revenues, for the While projects which incorporate V2G (or V2X) time they are not in operation. However, again, the capability are still some years away from actual technology needs to develop further before the cost development due to the very limited number of EV parities of investing in V2G fleet and the associated models currently capable of bi-directional charging, infrastructure are reached. they look to offer interesting opportunities in the longer term.

Funding EVCI – a debt or equity play?

As with any new technology, EVCI is still finding developing an understanding of the project life cycle its feet in terms of funding. For many investors the and associated revenue streams is key to opening lack of secure revenue streams and unpredictable up the funding market. In some cases a credit demand means that EVCI projects are high risk – decision informed by more traditional leveraged both from an equity and debt point of view. debt considerations, as opposed to strict project finance criteria, has enabled a viable debt solution “The investment case for EVCI is dependent on the to be configured. However as the market develops number of EVs on the road, the charging model and if and lenders become more comfortable with the charger utilisation rates ramp up then so will investor proposition we’d expect to see more tailored, flexible interest. However, at the moment we’re estimating debt deals come to market,” comments Gary Roscoe, that it will take a few more years before main stream Head of TLT’s Clean Energy Banking team. EVCI projects are widely accepted as an investment model. We are however seeing pockets of activity with With traditional project financing of EVCI lacking the niche transactions in this space such as supermarket cash-flow forecasting and historic data trends to charging infrastructure where the model has been able make it viable for main stream funding, what other to attract debt as well,” comments Gauri Kasbekar- options can developers consider? For those providing Shah, Director, Structured Finance at Natwest. fleet based EVCI where there is both scale and the benefit of more predictable revenue streams, asset That said, there has been some debt funding of EVCI. based lending may provide an alternative. With this model the residual value analysis of the fleet vehicles Potential revenue streams and the batteries helps to tip the investment case in Earlier this year Triodos Bank UK, Pod Point, the right direction. Volkswagen and Tesco collaborated in respect of the supply, installation and operation of up to 840 Funding multi-tech publically available electric vehicle charge points While asset finance may be an easier proposition across 600 nationwide Tesco stores. Whilst this is an on a stand-alone basis it does not stack up on a encouraging step in the right direction, the market for co-location basis, as the different technologies are debt funding is not yet wide-open. essentially chasing the same revenue streams. The “With technologies such as EVCI, funders are co-location model could work in the context where needing to review the established approach to the battery is not just being used in the context debt structuring. There’s no one size fits all and of an arbitrage play, but to also overcome grid

12 Powering the UK | a multi-faceted approach constraints so wind farms do not have to power solar. One of the most important things to consider at down, for example. However, the lack of volatility in the moment is seeing how it works with Agile tariffs – power prices and the cost of batteries mean that the making it cheaper and greener for customers to use economics do not quite make sense at the moment. them in off-peak hours – then we can begin looking As the cost of the technology comes down this might at how we can deploy this to scale,” comments Zoisa be a funding option to revisit. Walton, Director at Octopus Energy. Therefore, until the debt market for EVCI and It is also worth noting that, more generally, investor multi-tech projects matures, the play is mainly an interest in clean energy assets remains high and equity one. However, even on an equity basis the investors are keen to diversify their portfolios meaning market sweet spot is either stand-alone EVCI – both that there has been an increased interest in more destination and fleet – or EVCI plus storage where the nascent technologies such as EVCI, Cleantech and two assets are treated separately. hydrogen. As investors get more comfortable with the project modelling and revenue streams for these “The technology underpinning EVCI technology is technologies, investor interest will only increase and, still being developed, it’s something we’re actually as the market has seen before, what starts as an looking into as it’s an important milestone in the equity play soon develops into a debt play. electrification of transport, but it doesn’t yet have scale or usage of other technologies such as wind or

Conclusions

When looking at the electrification agenda it is one family two car model is becoming out-dated, important to remember it is not just about the particularly in cities where individual car ownership electrification of vehicles. The market is entering is dropping and car-share schemes and the use of a time when consumer demand is changing – green public transport are rising. To create a truly consumers want green transport which is powered multi-faceted solution, the market needs to look at by green energy. One part of that is personal vehicle vehicle electrification as whole – private use, public use and the EVCI which supports that, but at the use, fleet use, commercial use and, of course, the same time there is a shift in vehicle usage and the renewable generation that powers it.

13 Powering the UK | a multi-faceted approach ‘Those operating in the sector are already looking to the future and while the last few months have, predictably, seen a down-turn in on-site construction the overall market has remained very active.’

14 Powering the UK | a multi-faceted approach Summary

The clean energy sector is in an exciting stage As on-site activity ramps-up again and the CfD of development which is being driven by an auction, which is planned for 2021, draws closer we acknowledgement that, in order to meet the UK’s are likely to see a considerable number of these initial net zero targets, a multi-faceted solution which ‘land grabs’ turn into operational onshore wind and balances renewable generation with energy solar projects, which in turn creates an even stronger storage is required. case for the deployment of energy storage. Alongside subsidy-free solar and onshore wind and Alongside balancing renewable generation and stand-alone energy storage projects there are a storage you have the electrification of the UK’s number of co-located projects at the early stages of transport network. An EVCI network powered by development. Debt will follow an initial equity play green energy also requires a multi-faceted solution and, while the market is relatively cautious due to the to manage the increased demand on the energy unknown and unproven economics and risk-return system and network constraints. Therefore the 2035 balance, there is investor appetite to support these switch to electric is another key milestone for the projects. However, for those funding these ‘first-of- sector; by then we need to have a robust EVCI in a-kind-projects’ it is all about finding those initial place and the associated renewable generation and projects which have the economics locked down. storage to power it. And while the economics and challenges of co- location are still proving to be an impediment to wide- Overcoming challenges scale deployment, there are various routes-to-market Over the coming months it will be interesting to see being piloted, such as utility companies like Statkraft how the sector responds to these challenges; offering PPA products which can provide fixed revenue streams for single or multiple assets. It is likely ■ How can we overcome the challenges of multi- that as more of these products come to market we will tech/co-location in a subsidy free environment? see an associated uptick in co-located projects. ■ Where are the funding sweet spots for both a debt and equity play? Future investment opportunities ■ How might the sector be galvanised by the Those operating in the sector are already looking government, Ofgem and National Grid, for to the future and while the last few months have, example through additional legislation and/or predictably, seen a down-turn in on-site construction support for renewable generation, energy storage, the overall market has remained very active. EVCI and other associated clean technologies? Alongside investor activity in re-financing existing Whatever the direction of travel, it remains clear portfolios and the acquisition of both operational and that clean energy generation and zero-carbon shovel-ready sites, there had been a considerable infrastructure is key - both to achieving net zero and increase in the number of option agreements and helping drive the UK’s economy. leases for new subsidy-free solar (with the option for storage) projects and other grid-balancing technologies from energy storage to biofuel.

15 Powering the UK | a multi-faceted approach Key takeaways

■ The clean energy sector is poised for considerable growth, with trends driving the sector over the next year likely to include large scale subsidy-free solar, further development of battery storage and EVCI, and research into new technologies such as hydrogen. The sector continues to offer an attractive prospect for investors as they look to diversify from traditional operational assets. ■ The market needs to look at vehicle electrification as a whole, including private use, public use, fleets and commercial use. By 2035 we need to have a robust EV charging network in place as well as the associated renewable generation and storage to power it. This will require significant collaboration between private and public sector, with partnership between local authorities and private developers crucial to driving forward EVCI growth. Larger schemes, such as the development of the EV charging station model, will need to sit alongside residential, on-street chargepoints, and increased ‘destination charging’ at leisure and retail outlets. ■ The economics of and challenges with co-location are still obstructing wide-scale deployment, but there are various routes-to-market being piloted that can provide more security around revenue streams. As more of these products come to market we will likely see an associated increase in co-located projects.

16 Powering the UK | a multi-faceted approach 16 Experts in clean energy

Expertise

■ Involved in the clean energy sector for more than ■ One of a few firms that can advise on projects in 20 years. England, Wales, Scotland and Northern Ireland. Our dual-qualified clean energy specialists can ■ An outstanding reputation for innovation and a advise in all UK jurisdictions and the ROI. track record of working with some of the most entrepreneurial companies in the sector. ■ We advise on all aspects of clean energy projects across the range of technologies and ■ Advised in relation to the financing, development, project life-cycle, providing financing, corporate construction and onward sale of over 4GW of transactional, real estate, planning, grid, offtake solar projects, several hundred onshore wind, AD, and construction advice. biomass, biogas and other clean energy projects. ■ Expertise in specialist areas: technology, private ■ Advising on ‘first of a kind’ projects including wire arrangements, grant funding, IP, commercial subsidy-free, multi-technology, energy storage, partnerships & dispute resolution. electric vehicle charging infrastructure (EVCI) and Cleantech.

Maria Connolly | Head of Clean Kay Hobbs | Partner, Corporate Energy and Real Estate T 0333 006 0977 T 0333 006 0109 E [email protected] E [email protected]

Nick Pincott | Partner, Projects, Gary Roscoe | Partner, Banking Infrastructure and Construction T 0333 006 0466 T 0333 006 1224 E [email protected] E [email protected]

Katherine Evans | Partner, Head of Nick Shenken | Partner, Real Estate Planning and Environment Scotland and E&W

T 0333 006 0098 T 0333 006 1643 E [email protected] E [email protected]

Andrew Ryan | Partner, Planning Kevin Murphy | Partner, and Environment, NI and E&W Real Estate NI & ROI

T 0333 006 0967 T 0333 006 0361 E [email protected] E [email protected]

Matthew Grimwood | Partner, | Partner, Corporate Antonia Silvestri Real Estate T 0333 006 0189 T 0333 006 0393 E [email protected] E [email protected]

Stuart Urquhart | Legal Director, Joanna Hamilton | Legal Director, Commercial and Regulatory Real Estate Scotland

T 0333 006 0230 T 0333 006 1257 E [email protected] E [email protected]

E&W – England and Wales

17 Powering the UK | a multi-faceted approach About inspiratia

inspiratia pushes the boundaries of analytics in Contact the global infrastructure and renewables sectors, Jonathan McNair producing the most accurate and insightful analysis, Head of Content uncovering new financial information and making D + 44 2073 494 173 robust sector predictions. E [email protected] inspiratia provides clients with the tools to anticipate www.inspiratia.com and analyse market trends in a way that helps grow 535 Kings Road, London, SW10 0SZ their pipeline of deals and assists with business United Kingdom development. Based in London, inspiratia has an international team of industry experts and analysts all with in-depth sector expertise and extensive professional networks.

Methodology

inspiratia’s research aims to identify the most global project-financed social infrastructure, transport promising openings for multi-technology, clean and renewables deals. Other sources include energy projects, encompassing the business models governments, international organisations, rating and regulatory environments in energy storage, co- agencies, consulting firms, academic literature, located generation and storage, and electric vehicle newspapers, specialist press, and press releases. charging infrastructure. Our qualitative analysis was based on in-depth The quantitative data collated has been categorised interviews with debt and equity market participants according to sector, financing model, transaction and leading developers, who provided insight on the stage, transaction value, participant role and status, evolution of business models, assessment of debt with the goal of developing advanced data-driven and equity appetite and the regulatory frameworks analytics and insights. Our main source was dataLive, affecting the investment landscape. inspiratia’s proprietary project database that monitors

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